Nov. 28 (Bloomberg) -- BFA-Bankia, the biggest Spanish bank
set to receive European bailout funds, will cut about 6,000
jobs, or more than a quarter of its workforce, and forecast a 19
billion-euro ($25 billion) loss for this year.

Bankia will also sell 50 billion euros of assets through
2015, force losses on subordinated debt holders and reduce its
branch network by 39 percent, the Valencia, Spain-based company
said today. The European Commission approved the restructuring
plan as a condition for the 18 billion euros of European bailout
funds Bankia is set to receive.

“It’s a demanding but realistic plan,” said Chairman Jose
Ignacio Goirigolzarri at a news conference. “Bankia is a
company that with this aid is capable of recovering and we are
going to fight so that it does.”

Bankia was formed from the merger of seven regional savings
banks in Spain’s first attempt to clean up losses from the real
estate collapse, and then listed on the stock market last year
in a deal that hinged on support from retail investors. Bankia
is the biggest recipient of funds from the euro region’s rescue
facility, which Spain agreed to tap in June as narrowing access
to markets undermined its ability to backstop its banks.

Shrinking Banks

Bankia, Novagalicia Banco and Catalunya Banc will reduce
their balance sheets by more than 60 percent by 2017 compared
with 2010, European Union Competition Commissioner Joaquin
Almunia said in Brussels today. The three lenders started off as
savings banks, or cajas, which abandoned their traditional role
as small, local institutions to pursue profits in Spain’s real
estate boom, often with projects linked to regional politicians.

As part of the deal, shareholders and bond investors
including retail clients will be forced to absorb losses,
Almunia said. Preference shares will be swapped at an average of
61 percent of the nominal value and perpetual subordinated debt
will be swapped at 54 percent, Bankia said.

The exercise, which is known as burden-sharing and also
applies to the other bailed-out banks, will reduce the cost to
the taxpayer by 10 billion euros, Almunia said. The losses on
preference shares are controversial in Spain because they were
marketed to depositors as safe, high-yielding investments.

Record Unemployment

The 6,000 planned Bankia job cuts, some of which will
result from outsourcing rather than firings, come as Spain is
already battling a record high unemployment rate of 26 percent,
the highest in the EU. The economy remains in recession and the
slump caused by the collapse of the real estate boom five years
ago is likely to continue next year.

To help restore the financial industry, Spain is creating a
so-called bad bank to lift toxic real estate assets off rescued
lenders’ books. Bankia will pass 25 billion euros of assets to
the facility, for which Spain is still trying to find private
investors.

That figure is part of total asset sales of 50 billion
euros planned by 2015, which also includes selling 8 billion
euros of securities portfolios and 17 billion euros of loans,
Bankia said in a presentation today.

Bankia will return to profit next year and will aim for 1.2
billion euros of profit in 2015, Goirigolzarri said, adding the
lender had every intention of returning state aid. The group
estimates gross margin of 4.1 billion euros in 2015, about the
same as this year, as it cuts operating costs by 25 percent.

‘Best Shot’

“Are we going to reach the 1.2 billion euros? I’m going to
give it my best shot,” he said, adding that he and his managers
were not being naïve about the scale of their task. “Are we
going to do it? I don’t know. If I did, I’d be a magician.”

The Bankia group had assets of about 330 billion euros at
the end of 2010. The plan presented today includes trimming
gross loans to 125 billion euros in 2015 from 182 billion euros
now, with corporate loans rising to 38 percent of the lending
mix from 22 percent. Bankia will strip out the real estate loans
that now make up 19 percent of lending, the bank said.

“The projections on costs are fairly easy to make because
you know the cuts you need to make and that’s all fairly easy to
calculate,” said Inigo Lecubarri, who helps manage about $400
million at Abaco Financials Fund in London. “Projecting the
revenue part is very difficult because it’s the most unstable
and I would say the risks are to the downside.”

Industrial Stakes

The bank will have four years to sell off industrial
stakes, Director General Jose Sevilla told the news conference.
The group will sell its bank in Miami and its 15 percent stake
in insurer Mapfre SA, Goirigolzarri said.

Spain has pledged to sell Novagalicia Banco and Catalunya
Banc within five years or wind them down. Banco de Valencia was
bought by CaixaBank SA for 1 euro yesterday.

Almunia said he plans to decide on restructuring plans for
Liberbank SA, Banco Mare Nostrum SA, Banco Caja 3 and Ceiss on
Dec. 20. He declined to say how much money those banks would
need, adding it would be much lower than those announced today.